The euro clawed back some ground against the yen after a two-day dip, buoyed by expectations of a potential shift in the European Central Bank’s (ECB) monetary policy stance. Investors digested comments from ECB officials suggesting a possible shift in monetary policy. Chief Economist Philip Lane hinted at interest rate cuts later this year, while President Lagarde acknowledged easing inflation pressures. This dovish tilt contrasted with hawkish expectations, boosting the euro.
However, the euro’s ascent remains capped by concerns surrounding a potential recession in the Eurozone later this year. Vice President Guindos acknowledged this possibility, adding that the rapid inflation deceleration witnessed last year might temporarily reverse in early 2024. However, the Japanese yen remains relatively steady despite fading expectations of a near-term Bank of Japan (BoJ) rate hike. Despite inflation inching higher, the BoJ continues to emphasize its commitment to ultra-loose monetary policy, aiming for a sustainable inflation rise driven by wage growth.
Technical Analysis
EURJPY currently trades at 159.482, with the price sitting comfortably within an ascending channel, indicating upward momentum. The price action trades comfortably above the 20-SMA (green), 50-SMA (blue), and 100-SMA (orange), showing underlying bullish momentum. The recent bullish crossover of the 20-SMA above both the 50-SMA and 100-SMA further strengthens this bias.
The RSI sits at 59.39, pointing slightly upwards, suggesting potential for continued price appreciation. Short-term traders could look for opportunities towards the resistance level at 159.952 if the bulls maintain pressure above the SMAs. A decisive break above this level could confirm bullish momentum, potentially paving the way for further gains towards 160.677 and 161.398.
However, bearish pressure could emerge if price action dips below the 23.60% Fibonacci retracement level at 158.409. This breach might trigger a pullback towards the initial support at 157.632, potentially extending further down to 157.028.
Summary:
The current market sentiment surrounding the EURJPY is a blend of optimism and caution. The dovish ECB outlook and technical bullish signals offer reasons for optimism, while the potential Eurozone recession and fading BoJ hawkishness inject a dose of caution.
Therefore, EURJPY is poised for further upside if it can maintain momentum above the SMAs and break through the initial resistance at 159.952. A bullish breakout could target 160.677 and 161.398. However, a bearish reversal below the initial support at 158.409 could lead to declines towards 157.632 and 157.028.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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